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Investing Specialists

Four Stocks that Buffett and Combs Could Be Buying

Berkshire's hidden first-quarter transactions leave plenty to the imagination.

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By Greggory Warren, CFA | Senior Stock Analyst

Aside from making a $9 billion bid for Lubrizol (LZ),  Berkshire Hathaway's (BRK.A) (BRK.B) first-quarter trading activity was markedly different from what The Morningstar Ultimate Stock-Pickers Team saw from the insurer back in the third and fourth quarters of last year. As you may recall, Berkshire completely eliminated stakes in  Republic Services (RSG),  Iron Mountain (IRM),  CarMax (KMX),  NRG Energy (NRG), and  Home Depot (HD) during the third quarter, while trimming back positions in  Procter & Gamble (PG),  Moody's (MCO),  Nike (NKE),  Fiserv (FISV),  Nalco Holding (NLC),  Ingersoll-Rand (IR), and  Comcast (CMCSK); they used some of the proceeds from these sales to invest heavily in  Wells Fargo (WFC) and  Bank of New York Mellon (BK). The selling continued in the fourth quarter, with Berkshire eliminating holdings in Nike, Fiserv,  Nestle (NSRGY), Nalco,  Lowe's (LOW),  Becton Dickinson (BDX),  Bank of America (BAC), and Comcast.

While Berkshire put some of the money from these fourth quarter sales into Wells Fargo, we also noted that the insurer was building up a $2 billion to $3 billion cash stake that incoming portfolio manager Todd Combs could work with once he started overseeing investments this year. Much of the selling that took place during the second half of last year was directed at many of the smaller positions in Berkshire's stock portfolio, which Warren Buffett has traditionally ascribed to Lou Simpson, who had overseen the investment portfolio at the company's GEICO auto insurance subsidiary for more than thirty years. With Simpson retiring at the end of last year and Buffett looking to raise capital for Combs to work with, these holdings became expendable. That's not to say that the smaller positions that remain in the portfolio are sacrosanct, especially after there was just one stock sale during the first quarter of 2011, but the decision to sell (or buy more) may not come as readily as it did for the holdings that were sold in the third and fourth quarters of last year.

The Morningstar Ultimate Stock-Pickers Team does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.